Electricity adapters are necessary when travelling abroad. Technology systems communicate with each other via APIs (Application Programming Interfaces). Unlike electricity adapters, the use of APIs is sometimes complicated, and hence systems’ integration is often a lengthy and costly process.
The emergence of services over the web required a new approach to systems’ integration to address scale. Consider as an example a utility like Google maps, used by many applications and websites. Google (cloud) provides developers with ‘self-service’ tools, called open API, to integrate to maps. Open API frameworks are so essential that Google acquired in 2016 Apigee, a leading startup providing it. To date, open APIs are the rails of innovation of e-Commerce: retail, travel and more.
Regulators have identified the potential of openness to promote change. The 2nd EU Payment Services Directive (PSD2), published in 2015 and the UK Open banking from 2018 are examples of initiatives aimed to facilitate the consumption of financial services and to promote competition. These initiatives were followed by many regulators around the globe.
Tapping into regulators’ initiatives, banks have invested heavily in building their open API infrastructure. The Innopay Open Banking Monitor publishes a comprehensive overview on the state of banking platforms. Banks’ activities are not restricted to technology platforms. Banks are collaborating among each other on the creation of standards, like ‘The Berlin group’, to facilitate adoption. FinTechs aggregating banks’ APIs like: Plaid, Stripe, Tink and others, are making the launch of new digital products & services much easier than before. The revenues from those are split between the FinTechs providing them, the API aggregators and of course the banks.
Consider an eco-system of banks and users. In the past, customers were consuming all their digital banking services from their bank (gold arrows).
Open Banking (silver arrows) enable clients to consume digital services from a 3rdparty FinTech.
The FinTech will connect to the bank directly or via an API aggregator to consume customers’ data, and possibly other banking services like wire transfer. Let’s take as an example, a customer applying to a loan not from their bank. In the past he had to print and fax their banking ID. In an open banking environment, all the lender needs to do is to give consentto access her banking data and to perform actions on her behalf.
The following illustration demonstrates the benefits of ‘Open Banking’ for its participants:
One could argue banks will be reluctant to lose their exclusivity with clients. The reality is: For major deals, e.g. mortgage, customers will typically check more than one bank. Large customers work with more than a single bank. Lastly, often when customers are approaching 3rdparty FinTechs for services, it’s either because their bank doesn’t provide the service, it’s way too expensive or the bank won’t provide it to them. Coming back to the loan example above: while banks might refuse loans to the end customer from time to time, they will be comfortable financing debt from the FinTech.
In their recent World InsurTech Report (WITR) 2019, Capgemini & EFMA present a concept of insurance marketplace, very similar to the open banking mentioned above.
The role of insurers in this ecosystem is customers’ risk control advisors and partners. The adoption of open platforms by insurers as well as the creation of data standards are essential in achieving that vision.
Insurers have already started connecting to data aggregators. Vitality partnered with apple in 2016, Insurtech Trov partnered with Suncorp to introduce a mobility insurance in order to streamline underwriting and claim processes. According to World Insurance Report (WIR) 2019 by Capgemini & EFMA, “Customers are increasingly willing to share data and pay extra for better risk prevention services.”
Early adopters of the open insurance concept include incumbents like AXA and Allianz as well as InsurTechs. Since 2017, AXA has been launching transactional APIs, allowing partners with complementary offerings to plug in and deliver seamless insurance protection to customers. Allianz has announced in 2018 the establishment of its open platform. Also in 2018, SMB InsurTech CoverWallet has launched a commercial insurance API and P&C InsurTech Lemonade has also provided an API to its insurance services.
This all being said; the trends clearly signal a world of platforms and open partner ecosystems. Insurers and InsurTechs have to ask themselves what role they want to play in this transparent and highly connect world: Do they want to be an ecosystem participant and compete with commodity products? Do they see themselves as the ecosystem orchestrator? And/or would they even like to be the underlying data-driven tech platform? Many questions are to be answered and exciting times are to be expected ahead of us.
Yours truly – Lyron || Follow us on LinkedIn